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A succession of conversations with record labels over the last couple of months has made me start to ponder whether we are approaching a tipping point in streaming era A&R. At the heart of the conversations is whether the growing role of playlists and the increased use of streaming analytics is making label A&R strategy proactive or reactive? Is what people are listening to shaped by the labels or the streaming service? To subvert Paul Weller’s 1980s Jam lyrics: Does the public get what the public wants or does the public want what the public gets?

An old dynamic reinvented

Radio used to be the main way in which audiences were essentially told what to listen to. Labels influenced what radios would play through a range of soft tactics – boozy lunches, listening sessions etc. – and hard tactics – pluggers, payola etc. Now radio is in long-term decline, losing its much-coveted younger audience to YouTube and audio streaming services. Streaming services have learned to capture much of this listening time by looking and feeling a lot more like radio through tactics such as curated playlists, stations, personalisation and podcasts. Curated listening is increasingly shaping streaming consumption, ensuring that the listening behaviours of streaming users resembles radio-like behaviour as much as it does user-led listening. The problem for the record labels is that they have less direct influence on streaming services’ playlists than they did on radio.

Chasing the data

All record labels have become far more data savvy over recent years, with the major labels in particular building out powerful data capabilities. This has resulted in a shift in emphasis from more strategic, insight-led data, such as audience segmentation, to more tactical, data such as streaming analytics.

At MIDiA we have worked with many organisations to help them improve their use of data and the number one problem we fix, is going to deep with analytics. It might sound like a crazy thing to say, but we have seen again and again, companies fetishize analytics, pushing out endless dashboards across the organisation. Too often the results are:

decision makers paradoxically pay less attention to data than previously, not more, because they assume someone else must be ‘on it’ because of all the dashboards

strategic decisions are made because of ‘blips’ in the data.

There is a danger that record labels are now following this path, relying too heavily on streaming analytics. It is interesting to contrast labels with TV companies. Until the rise of streaming, TV networks were obsessed with ‘overnight ratings’, looking at how a show performed the prior night. Now streaming has made the picture more nuanced, TV networks are turning to a diverse mix of metrics, incorporating ratings, streaming metrics, social data and TV show brand trackers. Streaming made the TV networks take a more diverse approach to data, but has made record labels pursue a narrower approach.

The risk for record labels is that doubling down on streaming analytics can easily result in double and fake positives and create the illusion of causality. Arguably the biggest problem is making curation-led trends look like user-led trends, mis-interpreting organic hits for manufactured ones.

Lean-back hits

One major label exec was recently telling me about how one of his label’s artists had ended up in Spotify Today’s Top Hits and racked up super-impressive stats. The success surprised the label as everything else they knew about the artists suggested it would not be such a big breakthrough performer. Nonetheless the label decided to rewrite its plan and threw a huge amount of marketing support behind the next single. Yes, you guessed it, it flopped. When the label went back to the streaming stats, it transpired that the vast majority of plays were passive. It was a hit because it was in a hit playlist that users tend not to skip through, which created an artificial hit, albeit a transitory one.

This case study highlights the two big challenges we face:

Streaming analytics stripped of the context of insight can mislead

Lean-back hits are not real hits

Chasing the stats

The two points are now combining to create what may yet be an A&R crisis. By chasing streaming metrics, the more commercially inclined record labels – which does not exclusively mean major labels – are creating a data feedback loop. By signing the genre of artists that they see doing best on playlists, they push more of that genre into the marketplace which in turn influences the playlists, which creates the double positive of that genre becoming even more pervasive. This sets off the whole process all over again. And because the labels are chasing the same genre of artists, bidding wars escalate and A&R budgets explode. This leads to labels having to commit even more money to marketing those genres because they can’t afford for their expensively acquired new artists not to succeed. All of this helps ensure that the music becomes even more pervasive. And so on, ad infinitum. Five years ago, this probably wouldn’t have been a problem but now record labels are flush with cash again, they are throwing out advances that they can now afford on a cash flow basis, but not on a margin basis. Because record labels – majors especially – remain obsessed with market share, none are willing to jump off the spinning wheel in case they jump too soon. It is a game of chicken. As one label exec put it to me: “In the old days we were betting on the gut instinct of an A+R guy who at least knew his music, now we’re chasing stats rather than tunes”.

Not so neutral platforms

Of course, none of this should be happening. Streaming platforms should be neutral arbiters of taste, simply connecting users with the music that best matches their tastes. But streaming services are locked in their own market share wars, each trying to add the most subscribers and drive the most impressive streaming stats – just look at how Spotify and Apple fell over each other to claim who had streamed Drake’s Scorpion most. In such an intense arms race, can any streaming service risk delivering a song to its users that might result in fewer streams than another one? Therefore, what we are now seeing is a subtle, but crucial, change in the way recommendation algorithms work. Instead of simply looking a user’s taste to estimate what other music she might like, the algorithms test the music on a sample of users to make sure they like it first before pushing it to a wider group of users that match that profile. In short, the algorithms are playing it safe with hits, which means surprise breakouts are becoming ever less likely to happen. Passenger’s slow burning ‘Let Her Go’ simply might never have broken through if it had been launched today. And yes, if you didn’t skip that Scorpion track in Today’s Top Hits then you are now that bit more of a Drake fan, even if you actually aren’t.

Where this all goes

Something needs to change, and ideally someone will have the balls to jump off the wheel before it stops spinning. Right now, we are on a path towards musical homogeneity where serendipitous discovery gets shoved to the side lines. And with listeners having progressively less say in what they like because they are too lazy to skip, record labels will become less and less able to determine whether they are getting value for money from their marketing and A&R spend.

It was a day of two halves for YouTube. On one side a big press release went out championing a host of impressive new stats – including hitting 1.9 billion logged in users, following an official launch of YouTube Musicthe day before. Meanwhile, on the other side, the European parliament’s legal affairs committee voted in support of Article 13, whichwill overturn some basic premises of the fair use / safe harbour frameworks under which YouTube operates. The question is which half will prove to be most impactful on YouTube’s music strategy.

It’s complicated

If YouTube was to post the status of its relationship with the labels on its Facebook profile it would be ‘It’s complicated’. The whole value gap argument – which posits that YouTube does not pay as much as other streaming services because it does not have to directly license in the way they do – has created a war of words characterised by obfuscation and disinformation on both sides. Its super-recent new premium strategy was almost certainly timed to coincide with this vote and it helps present YouTube as a premium player, doing what the labels want.

But fundamentally, Google and its YouTube subsidiary are all about selling advertising. If you put too many of your most valuable customers behind an ad-free pay wall, advertisers will eventually stop paying as much for ads. Google is not about to kill off a large scale, high-margin business for a small scale, low margin one. In short, Google cannot afford for music subscriptions to be too successful.

The three numbers that matter

The EU vote will likely get pushed to a full parliamentary vote, so the legislative picture is still far from resolved. When determining the outcome, policy makers, YouTube and rights holders should consider three metrics: $0.0020, -51% and 171:

$0.0020: In the US, where there is a strong video ad market, effective per stream rates for YouTube actually increased by 14% in 2017 to $0.0020. Bet you haven’t heard that spoken about much by rights holders? Globally however, the rate fell for labels but, interestingly, was about flat for rights holders overall (publishers get paid on videos—such as cover versions, so there are more videos they get paid on, labels do not).What it means:YouTube’s US experience shows market economics can reduce the value gap.

–51%: This was Spotify’s gross margin on ad supported in Q1 2016. By Q1 2018 it had risen to 13%. This was in large part because the labels had cut Spotify better deals on ad supported, which meant that the difference between what YouTube pays and what Spotify pays now is smaller than it was in 2016 when the value gap lobbying was in full effect. What it means: the labels have reduced the value gap!

171: This is how many days it took on average for music videos to reach one billion views in 2017. In 2010 it took 1,841. YouTube has become far more effective at turning songs into hits, thus making it more valuable to the music business than ever before. Major record labels are in the business of making superstars, but superstars need massive global audiences to turn them into global brands—much bigger audiences than you get behind a Spotify paywall. The majors need YouTube’s scale to make global successes. What it means: the labels need YouTube as much as it needs them.

Commercial sustainability is the core issue

At the heart of the value gap argument is a fight for control. Rights holders want more control over YouTube to extract better deals and YouTube does not want to cede that control. But there is an argument that YouTube’s greater control enabled it to build a commercial sustainable model. Spotify, which does not have YouTube’s negotiating power, is still not generating a net profit on streaming. On a sliding scale, there are label-defined rates with a non-commercially sustainable business model at one end, while at the other end there is YouTube, which does not pay rights holders what they want, but has a commercially sustainable model. The solution clearly lies somewhere between the two extremes. Moreover, what is crucial, if YouTube is going to remain incentivised to continue to make music videos a success, is that rights payment need to be a share of revenue, not based on a minimum per track fee.

Would YouTube walk away from music?

Spotify is, for now at least, all about music, so it has to make it work. YouTube is not. If music suddenly becomes lower margin for YouTube with fixed per stream costs, then it would be commercially foolish for YouTube to do anything other than push its viewers to other forms of content than music. That 171-day metric didn’t happen on its own. YouTube honed its algorithms to ensure it can make hits faster for the music industry, but it can dial that back in an instant.

There is even a possibility that paying more for music rights could scupper YouTube’s entire business model as other types of rights holders might start demanding better rates too. The crux of the matter is that the current economics suit YouTube but not rights holders. What we have to be careful to avoid is a new paradigm where roles are reversed. As important as music is to YouTube, Google could walk away if it really wanted to. Rights holders—labels especially, need to think whether that is a price they are willing to pay.

It is easy to feel that the pervasive obsession with Spotify overplays its importance to the recorded music industry. On the one hand it may only represent 27% of global recorded music revenues, but this compares to a peak of around 10% that Apple enjoyed at the peak of the iTunes Music Store. So, whatever label concerns existed back then about market influence – and there were plenty – their apprehensions have now multiplied. The assumption among many investors and label executives is that Spotify’s market share will lessen as the market grows. However, Spotify has thus far held onto its subscriber market share as the market has grown and looks set to do so in the foreseeable future.

If revenue is Spotify’s ‘hard power’ its real influence comes in its ‘soft power’. This takes two key forms:

Cultural influence:Despite being less than a third of revenues, record labels, artists and managers typically see Spotify as the proving ground, the place where hits are made. Marketing and promotion efforts are centred around getting traction on Spotify, knowing that success there normally leads to success elsewhere. Thus, Spotify’s cultural influence far outweighs its market share. As is so often the case with soft power, those affected most by it are those who inadvertently ceded it.

Innovation / disruption / innovation:Since embarking on its DPO path Spotify has been talking out of both sides of its mouth at the same time. On the one hand it positions itself as a safe pair of hands for the records labels, and on the other it lays out for investors a vision of a future world were artists don’t have to choose to work with labels. Labels have long feared just how far Spotify is willing to go and also, just how quickly. Spotify is now showing signs of going full tilt.

A rabbit out of the hat

When Spotify reported its Q1 earnings, the music industry consensus was a job well done. It delivered nearly on-target revenues (though they were down slightly on Q4), solid subscriber growth, improved margins and reduced churn. But it wasn’t enough for Wall Street. Spotify’s stock price fell to $150.07 down from a high of $170 in the days building up to the earnings. So what went wrong? Investors were expecting Spotify to pull a rabbit out of the hat. They’d been promised an industry changing investment and had instead got an industry sustaining investment. Such fickle investor confidence so early on in the history of a public company can be fatal. So, Spotify quickly searched for that rabbit; it announced that it will do direct deals with some artists and managers. Guess what happened? Spotify’s stock price rose to $172.37. The rabbit was bounding across the stage.

Investors want the new world now

These are the new rules of streaming music. As the bellwether of streaming, Spotify has been dictating the narrative for years, but always with the focus of being a partner for rights holders. Now that it is public, Spotify has found that tough talking trumps sweet talking. Even if Spotify does not intend to go fast on its next gen-label strategy, it now knows it has to talk fast. Speaking from the experience of months of deep conversations with large institutional investors, Wall Street has pumped money into Spotify stock not because of how it will help labels’ businesses, but because they expect it to replace labels, or, at the very least, compete with them at scale. Spotify’s stock was not cheap, so to deliver to investors the returns they crave, it has to show that its influence is as disruptive / innovative (delete depending on your perspective) for the music business as Netflix has been for the TV business. They are investing in the potential upside on a future industry changer, not a present-day industry defender.

Spotify needs to speak boldly but act responsibly

Spotify cannot of course go all guns blazing yet, as it simply cannot afford to operate without the major labels. Netflix could get away with what it did because the TV rights landscape is fragmented. Therefore, Spotify will have to tread carefully until it can pick away at major label market share through various forms of direct deals. But it also has to do this cautiously (as I explained in this post). If it is too quick and bold it will incite retaliatory action from the labels. So, the new rules of engagement for Spotify and rights holders are a bit like international diplomacy: make bold public statements to keep domestic voters happy but adopt a more conciliatory approach with partners behind closed doors. Let’s just hope that Spotify opts for the Justin Trudeau school of international diplomacy over the Donald Trump approach.

Spotify has been forced into something of a rethink regarding its hate speech policy. Spotify announced it was removing music from playlists of artists that do not meet its new policy regarding hate speech and hateful behaviour. R.Kelly, who faces allegations of sexual abuseand XXXTentacion, who is charged with battering a pregnant woman, were two artists that found their music removed. Now Spotify is softening its stance following push back externally and internally, including from Troy Carter who made it known that he was willing to walk away from the company if the policy remained unchanged. Spotify had good intentions but did not execute well. However, this forms part of a much bigger issue of the changing of the guard of media’s gatekeepers.

Part of the founding mythology of the internet was that the old rules don’t apply anymore. Some don’t, but many do. Responsibilities to society still exist. Platforms are never neutral. The code upon which they are built have the ideological and corporate DNA of their founders built into them – even if they are unconscious biases, though, normally, they are anything but unconscious. The new gatekeepers may rely on algorithms more than they do human editors, but they still fundamentally have an editorial role to play, as the whole Russian election meddling debacle highlighted. Whether they do so of their own volition or because of legislative intervention, tech companies with media influence have an editorial responsibility. Spotify’s censorship crisis is just one part of this emerging narrative.

Editorial, not censorship

As with all such debates, language can distort the debate. Indeed, the term ‘censorship’ conjures up images of Goebbels,but swap the term for ‘editorial decisions’ and the issue instantly assumes a different complexion. Spotify was trying to get ahead of the issue, showing it could police itself before there were calls for it to do so. Unfortunately, by making editorial decisions based upon accusations, Spotify made itself vulnerable to being accused of playing the role of judge and jury for artists who live in countries where innocence is presumed in legal process, not guilt. Also, by implementing on a piecemeal rather than exhaustive basis, it gave itself the appearance of selecting which artists’ misdemeanours were considered serious enough to take action upon. Spotify had the additional, highly sensitive, risk of appearing to be a largely white company deselecting largely black artists on playlists. Even if neither semblance was reflective of intent, the appearance of intent was incendiary.

Lyrics can be the decider

Now Spotify is having to rethink its approach. It would be as wrong for Spotify to opt for the ‘neutral platform’ approach as it would be ‘arbitrary censorship’. An editorial role is necessary. In just the same way radio broadcasters are expected to filter out hate speech, tech companies have a proactive role to play. A safer route for Spotify to follow, at least in the near term, would be to work with its Echo Nest division and a lyrics provider like LyricFind to build technology, moderated by humans, that can identify hate speech within lyrics and song titles. It wouldn’t be an easy task, but it would certainly be an invaluable one, and one that would give Spotify a clear moral leadership role. In today’s world of media industry misogyny and mass shootings, there is no place for songs that incite hatred, racism, sexism, homophobia or that glorify gun violence. Spotify can take the lead in ensuring that such songs do not get pushed to listeners, and thus start to break the cycle of hatred.

Looking at the global top tracks on Spotify, just 18% of the tracks from the top 30 streams are from solo female artists. In terms of chart positions the male dominance is even more pronounced with female artists making up 13%, or just four, of the top 30 slots.

So how did we get here? Part of the reason is that big female acts like Beyoncé, Rihanna and Katy Perry are out of cycle, but there are other factors too:

Hip hop A+R strategy: Hip-hop has replaced EDM as the record labels’ second favoured genre (after pop). When streaming exclusives were a thing, Apple Music and Tidal were fighting it out over hip hop and urban exclusives such as Frank Ocean and Beyoncé. Meanwhile, Drake was the most streamed artist of 2016. In 2014 and 2015, labels were falling over themselves to sign EDM artists. In 2016 and 2017, hip hop and urban artists have become the sought-after commodity. EDM is a male dominated genre but hip hop is even more so. Thus of the 11 hip hop artists in the top 30 most streamed tracks on Spotify globally for the week ending 8/11/17, all of them are male. You have to go down to position 33 to find the first and only solo female hip hop artist (Cardi B) in the top 50 streamed tracks.

Streaming algorithms: Playlists are at the heart of streaming consumption and their relevance is determined by a combination of user-data learning and human curation. As a result, a vicious circle emerges, whereby playlists end up full of the music labels are pushing, and because people tend not to skip that much when listening, the user data suggests that this is the music they want to listen to. To quote Paul Weller’s lyrics: the public wants what the public gets. With hip hop now de rigueur, it essentially self-accelerates on streaming. And with most of the big artists being male, females end up becoming side lined. It is a classic case of the law of unintended consequences.

In truth, many genres have a strong male bias. Rock, now a shadow of its former self (just two artists in the top 30 Spotify tracks are rock) is similarly male dominated. Pop and vocal music have long been the genres where female artists have done best. However, right now, the hip hop-defined picture of popular music is particularly skewed. When you get further down the tail, things even out a little. Within the top 50, female artists generate 23% of streams, and the full year numbers will be better balanced when seasonal skews, such as big female artist release cycles, are balanced out. Nonetheless, the inescapable takeaway is that the combination of label A+R strategy and streaming curation have, unintentionally, created a distorted picture of the top of the music pile.

This is a guest post from MIDiA’s Media and Music Analyst Zach Fuller.

For a brief moment last year, windowing seemed like the future of music streaming. Already common practice in the film-industry, the strategy was being touted as a way of utilising artist fan engagement to drive registrations (both freemium and paid) to streaming services, thus engendering the payment behaviours that would ultimately grow the industry. Yet, as MIDiA addressed last year, Frank Ocean’s bait-and-switch manoeuvre with Universal in August 2016 sent shockwaves through an industry still acclimatising to streaming economics. Arriving on the coat-tails of a windowing gold-rush that had seen releases by Beyonce, Kanye West and Chance the Rapper all utilising the strategy, Ocean’s move effectively put the brakes on the practice, leaving Universal CEO Lucian Grainge allegedly so infuriated that he ordered a company-wide halt to any further windowing projects.

Fast forward to 2017 and Jay-Z’s 4:44 has brought windowing back to the fore. Whilst numerous personal revelations (as well as receiving Jay-Z’s best critical response since 2003’s The Black Album)have meant blanket press coverage across social and traditional media, it is also notable that 4:44 is the first major windowing project to arrive this year. This is despite 2017 presenting two substantial windowing opportunities with Ed Sheeran’s new album and Harry Styles’ self-titled debut – however neither were windowed on any service. Jay-Z however, is in a very different position to most artists. Aside from owning his own streaming service, Jay-Z’s control over his artistic output extends back to the very beginning of his career. He co-founded his own label, Roc-A-Fella Records (distributed through Universal), to release his debut back in 1996, and as was reported last year, he is now in full control of his own master rights. Such self-determination over one’s career at the scale of his audience is rare, thus enabling 4:44’s window release while the rest of the industry retreats from such practices.

Audience reticence can also be attributed to the unlikelihood this is a move to build TIDAL’s user base. Kanye West claimed his 2016 release ‘The Life of Pablo’, ‘My album will never never never be on Apple. And it will never be for sale… You can only get it on Tidal.’ This position lasted around a week, with Kanye now allegedly having left TIDAL over unpaid royalties. Similarly, Beyonce’s TIDAL exclusive lasted just 24-hours. It is therefore fair to assume that music fans have become naturally suspicious about the nature of windowing and how long they will have access to exclusive content should they subscribe to a particular service. This accounts for the trend of free-trial hopping between streaming services as well as the fact that Jay-Z’s album has already been subject to high levels of piracy.

Streaming services themselves also continue to exhibit agnostic positions on windowing. Apple Music’s Jimmy Iovine earlier this year seemed to infer the company would move away from such practices, stating ‘We’ll still do some stuff with the occasional artist. The labels don’t seem to like it and ultimately it’s their content.’Spotify on the other hand, having previously stated they were against windowing, have in recent months suggested they may transition towards windowing certain releases on their premium tier. For these reasons, 4:44’s window should be considered less about swelling the subscriber base, as was the intention of windowing efforts last year, but rather reaching his most engaged audience first. Jay-Z’s fanbase are likely to be already on the platform when taking into account the immediate rush of subscribers that followed its release last year. Interestingly MIDiA Research’s consumer survey data shows that Tidal subscribers over-indexing as older and more prominently male than on other competing streaming music services. Whilst TIDAL’s problems are therefore unlikely to subside with this release, 4:44 could at the very least resume the dialogue on how windowing will be employed going forward in growing streaming’s paid users.

Forbes has released its annual Celebrity 100, its list of the top earning media stars. The healthy share of music artists hints at the continued ability to build highly successful music careers. The presence of younger, streaming era artists like Drake and the Weeknd goes further, hinting at how streaming can now be the foundation for superstar commercial success. However, although the superstars are clearly making very good money from streaming in its own right, the dominant school of thought is that streaming is a conduit for success, helping drive artists’ other income streams, live in particular. The ‘don’t worry about sales, make your money from touring’ argument is an old one, but it is as riddled with risk now as when it first surfaced, perhaps more so.

Here are 2 key quotes from Forbes that encapsulate the way in which many artists are now viewing streaming:

“We live in a world where artists don’t really make the money off the music like we did in the Golden Age…It’s not really coming in until you hit the stage.” The Weeknd

“The reason the Weeknds of the world and the Drakes of the world are exploding is a combination of a global audience that’s consuming them freely at a young age [and that] they just keep dropping music…They’re delivering an ongoing, engaged dialogue with their fan base.” Live Nation CEO Michael Rapino

Both quotes imply that live is the place you’re going to make your money. They also argue that streaming can be used intelligently to engage fans because it is not constrained by old world limits such as shelf space and physical distribution considerations. In the old model, artists could go years between album releases, leaving fans hanging, while touring would often be a loss-leading effort to help sell the album. The roles are now reversed.

The rise of live music revenue in 2000s mirrored the decline of recorded music, replacing each lost dollar and adding another one on top. In 2000, recorded music represented 53% of the global music industry, that share is now just 38% while live went from 33% to 43%, though recorded music revenue is now growing again, winning back market share. On this basis, the ‘stream to gig’ argument makes a lot of sense. But things are never as simple as they first appear:

Not all live music revenue is created equally: On average, around just 29% of live music revenue makes it back to the artist (after agents, costs etc are factored in) while many artists don’t make any money on live until they’ve reached a certain level of scale. And that’s before considering that the top 1% of live artists (many of whom are aging heritage acts) account for 68% of all live revenue.

Streaming has fewer middlemen: With streaming there can be relatively few middlemen (e.g. just TuneCore and the streaming service, though in practice many labels use 3rd party distributors etc). Meanwhile in live there is a multitude of middlemen, many of whom are highly protective of their roles. In streaming, artists have a wealth of data and insights such as Spotify’s artist dashboard and Pandora’s Artist Marketing Programme (AMP). All of which means that artists have to share revenue with more parties in live and they also have less transparency than they do with streaming.

Resselling is causing friction: All of this is without even considering the corrosive impact on live of ticket resellers such as ViaGoGo and GetMeIn. These business models are incredibly smart from a VC perspective, meeting huge market demand for a comparatively scarce product. But that doesn’t make them good for fans, the live business nor for artists. Most often, though not always, artists do not see a penny of resell revenue. It is money that is taken from music fans and sucked straight out of the industry. Artists lose out, fans lose out. Ticketing companies gain. All that hard work invested in building fan relationships goes out of the window.

The Tide Is Turning

More than all this though, the tide is turning. The 2016 results of Live Nation (parent company of Ticketmaster and one of the largest live companies) point to an industry that, while it is still growing, has cracks appearing. Revenue grew by 15% from $7.3bn to $8.6bn (more than the entire GDP of Haiti) but increased ticket prices drove much of the growth. Ticket prices were up 5% overall and by 10% in stadiums and other big venues. Revenue growth was also driven by in-venue merch spending (up 9%) and sponsorship and advertising (up 13%). Live Nation’s number of ‘fans’ was up 4% in the US but was flat internationally. To be clear, these are strong results for Live Nation but they also reflect a highly mature industry that is squeezing out every last drop of growth through price increases and additional revenue streams. And it is nothing new: Pollstar reports that average ticket prices increased by 22% between 2006 and 2015. Total live revenues grew by 37% over the same period which means that nearly half of all live revenue growth came from ticket price inflation.

Streaming Is Today, Not Tomorrow, Start Treating It That Way

All this comes with streaming revenue growing by $2.5m in 2016 (in retail terms) and overall recorded revenues growing by nearly a billion. The live music business has strong growth left in it, but that revenue is not evenly distributed, will likely slow in the near-ish future and has an underlying core spending trend that is largely flat. Streaming, on the other hand, is booming and will break the $10bn mark this year.

So why are superstar artists still looking to live to pay the bills. Firstly, it’s easier to make really good live money if you’re a superstar, and secondly, streaming still isn’t big enough yet for really strong streaming revenue. The Weekend’s 5.5bn cumulative streams (including YouTube) will have generated the artist around $4 million while if he’d instead sold 5 million copies of Starboy he’d have netted around $10 million.

Streaming simply needs more monetized users in the pot, especially paid subscribers. That will come but rather than just wait, more needs to be done now to help artists get more income from streaming, such as:

Better rates for artists (many only earn 15% of the label share, which is around 70% of the $0.008 blended rate for freemium services)

More ways for artists to monetize on streaming services (e.g. artist subscriptions, pay per view live streams and gigs)

More artist-centric experiences

Add together all the pieces and you start to create an environment in which artists can see a more immediate direct return from streaming. That is how we get to stop artists simply viewing streaming services as a way to market their wares. It is great that streaming can play that marketing role but sooner or later, labels and artists need to focus more on streaming being the destination not just the journey. With so much market momentum, it is tempting to think of streaming as ‘mission accomplished’. In reality we’re just getting going. To move streaming to that next stage, much more work needs to be done and the time to do that is now, not when the market starts to mature (which will happen some time in 2019). It is not in the interest of streaming services to simply be seen as a tool for getting more bums on seats. Nor is it in the interest of labels as they only participate in a small share of live revenue. Is streaming going to become a bigger revenue stream than live for big artists? No, but it can be a much bigger source than it is right now, but only if the model evolves. If streaming cannot break out from its beachhead of being the discovery journey then it will never reach its destination.

One of the great, though less heralded, successes of streaming in 2016 was keeping the lid on artist angst. Previous years had been defined by seemingly endless complaints from worried and angry artists and songwriters. Now that torrent has dwindled to a relative trickle. This is largely due to a) a combination of artist outreach efforts from the services, b) so many artists now seeing meaningful streaming income and c) a general increased confidence in the model. Despite this though, the issues that gave creators concern (eg transparency, accountability) remain largely in place. The temptation might be to simply leave things as they are but it is exactly at this sort of time, when stakeholders are seeing eye to eye (relatively speaking at least), that bold change should be made rather than wait for crisis to re-emerge. It is no easy task fixing a plane mid flight. So it is encouraging to hear that Deezer is looking to change one the key anomalies in the streaming model: service centric licensing.

Service Centric Licensing

Currently streaming services license by taking the total pot of revenue generated, dividing that by the total number of tracks streamed and then multiplying that per stream rate by the number of streams per track per artist. Artists effectively get paid on a share of ‘airplay’ basis. This is service centric licensing. It all sounds eminently logical, and it indeed it the logic has been sound enough to enable the streaming market to get to where it is today. But is far from flawless. Imagine a metal fan who only streams metal bands. With the airplay model if Katy Perry accounted for 10% of all streams in a month, the 10% of that metal fan’s subscription fee effectively goes towards Katy Perry and her label and publisher. Other than aggrieved metal fans, this matters because those metal bands are effectively seeing a portion of their listening time contributing to a super star pop artist. To make it clearer still, what if that metal fan only listened to Metallica, yet still 10% of that subscriber’s revenue went to Katy Perry?

User Centric Licensing

The alternative is user centric licensing, where royalties are paid out as a percentage of the subscription fee of the listener. So if a subscriber listens 100% to Metallica, Metallica gets 100% of the royalty revenue generated by that subscriber. It is an intrinsically fairer model that creates a more direct relationship between what a subscriber listens to and who gets paid. This is the model that I can exclusively reveal that Deezer is now exploring with the record labels. It is a bold move from Deezer, which though still the 3rd ranking subscription service globally has seen Spotify and Apple get ever more of the limelight. While Deezer will undoubtedly be hoping to see the PR benefit of driving some thought leadership in the market, the fact it must find new ways to challenge the top 2 means that it can start thinking with more freedom than the leading incumbents. And a good idea done for mixed reasons is still a good idea.

Honing The Model

Deezer has had encouraging if not wildly enthusiastic feedback from labels, not least because this could be an operationally difficult process to implement. The general consensus among labels I have spoken to is cautious optimism and a willingness to run the models and see how things look. When I first wrote about user centric licensing back in July 2015 I got a large volume of back channel feedback. One of the key concerns was that the model could penalize some indie labels as fans of their acts could be more likely be music aficionados and thus listen more diversely and more heavily. This could result in the effective per stream rate for those fans being relatively low. By contrast, a super star pop act might have a large number of light listeners and therefore higher effective per stream rates.

The truth is that there is not a single answer for how user centric licensing will affect artists and labels. Because there are so many variables (especially the distribution of fans and the distribution of plays among them) it is simply not possible to say that a left field noise artist will do worse while a bubble gum pop star will do better. But in some respects, that shouldn’t be the determining factor. This is an intrinsically more transparent way of paying royalties, that is based upon a much more direct relationship between the artist and their fan’s listening. There may well be some unintended consequences but ultimately if you want fairness and equality then you don’t pick and choose which fairness and equality you want.

If Deezer is able to persuade the labels to put user centric licensing in place, it will be another sign of increasingly maturity for the streaming market. Streaming drove $1bn of revenue growth for the recorded music business in 2016, without it the market would have declined by $1bn (due to revenue decline elsewhere). Streaming is now a monumentally important market segment and there is no better time to hone the model than now. User centric licensing could, and should, be just one part of getting streaming ready for another 5 years of growth. Deezer might just have made the first move.

I recently took part in the True Music Forum in Madrid, an event organized by Boiler Room. I was on a panel that explored whether DIY is now coming of age with a host of high profile artists, most of them urban artists, bypassing or twisting the traditional label model and still achieving stand-out success. On the surface, these look like golden years for DIY, and in many ways they are, but much of what is happening at the top end of the scale has little to do with DIY. Streaming is transforming how artists view recorded music income and is making it possible for artists to pick and choose what label capabilities they want. But more often than not, it is a variation of the label model that succeeds rather than a replacement of it. This is the start of the post-DIY movement.

The First Wave Of DIY

Firstly, to be clear, DIY is alive and well, better than it has ever been in fact. With labels increasingly only signing artists once they have seen them build up following and ‘a story’, it is becoming increasingly common for artists to spend the formative stages of their careers ‘DIY’, releasing their own music, managing their social campaigns, making their own videos, booking their own tours etc. Added to that, the combination of streaming, direct-to-fan platforms and social apps have combined to make it possible to build niche audiences on a global scale. So it is now possible for a new tier of artists to exist, a tier of artists that may never dent the charts (for whatever they may be worth these days) but that can build solid, sustainable careers by engaging their fans directly. Stalwarts like Bandcamp and CD Baby have never had it so good, while a whole crop of new entrants, such as the much hyped BandLab is emerging to drive the market forward. And of course, Soundcloud, for all its financial challenges, provides artists with a platform to engage massive audiences globally without need for any middleman whatsoever.

DIY Versus Empowered Superstars

That is the DIY movement that will go down in history as one of the most culturally significant legacies of the Napster market shock. An organic, grass roots musicians’ revolution. Now though, we are seeing the emergence of a more commercially minded take on DIY, one that draws on the practices of its predecessor but that combines them with the big label model to take full advantage of the best of both worlds. This new breed of superstar DIY artist enjoys the benefit of fiercely held independence with world class distribution and marketing. They are taking the tools of DIY but not all of the ethos. The superstar DIY artist typically builds a strong brand and buzz (and often, but not always, a big live following) and then uses that as a platform to strike a deal with a major label (or a major label subsidiary company) to get the benefits of major label scale without giving up control (nor masters). This can take various forms, such as:

In each scenario the artist retains large amounts of control (or at least more than in a traditional label deal) but gets the support of world class, global infrastructure and marketing. The artists picks the services s/he wants, like an advertiser does with a full- service ad agency. The label services and standalone distributor models have been around for some time, but now they are being used by business savvy, super ambitious superstars in-the-making. And the artist gets to retain an aura of authenticity and independence.

Urban music, and hip hop in particular, has become a hotbed of artist-led business innovation. Although hip hop has always had stronger commercial sensibilities than other genres, streaming has brought the business innovation to the fore, ranging from the original hip hop superstar businessman Jay Z and his Tidal service, through Frank Ocean’s Apple Music released ‘Blonde’ to Stormzy’s streaming record breaking streaming success. And the innovation is happening at the grass roots of hip hop too. As the brilliant Kieran Yates noted on the Boiler Room DIY panel, many UK Grime artists are now signing publishing deals before label deals as a) this can often mean bigger advances in today’s indie music market, and b) there is a perception that this means giving up less control, which in turn empowers the artist to strike a better deal with a label, or label-owned company. This also opens up a world of opportunity for independent music marketing agencies etc who can become part of new, agile teams.

Streaming has been continually rewriting the rule book for many years now, but we are entering a period of even faster change, with many of the more fundamental effects being the indirect consequences, such as the rise of post-DIY. It would be wrong, however, to think of this as a ‘death of the label’ narrative. Because the labels (majors and indies) are being smart enough to be as flexible and agile as artists need them to be. Artists are changing and labels are changing just as fast to meet their new needs and terms of reference. Perhaps, the best way to capture the approach of the new era of post-DIY artist is to go back to Jay Z’s classic ‘Diamonds From Sierra Leone’ lyric: I’m not a businessman; I’m a business, man!

Unless you have been hiding under a stone on Mars this last few weeks you will have struggled not to hear or see some clip of Ed Sheeran one way or another. Atlantic Record’s carpet bombing market campaign has tipped Sheeran into global ubiquity. At the centre of this approach is a ‘be everywhere’ streaming strategy which saw Sheeran clock up over 68 million Spotify streams in 1 day (a record for any single artist). Though, the 1 billion views he clocked up for ‘Divide’ on YouTube shows where the real streaming audience of scale resides. But what makes Sheeran’s ‘Divide’ campaign stand out is what it has done to the charts. Or rather, the weaknesses in the charts that ‘Divide’ shines a light on.

What Role Should Streaming Era Charts Play?

As of March 13th, Ed Sheeran’s ‘Divide’ album accounts for 9 of the UK top 10 singles, while all of the 16 tracks on the album are in the top 20. If there was ever a sign that streaming is breaking the charts then this is it.

Underpinning all of this is an existential industry debate over whether streaming is replacing retail or radio. In truth, of course it is replacing both, but which is it doing more? The answer to that determines the role charts should be trying to play. However, the answer looks very different depending on where you sit. If you are a record label you see streaming growing by 57% in 2016 to reach $5.4 billion. Streaming is indeed becoming the future of retail. But it is also how you break artists and releases now, therefore it is a bit of both. Go over to the artist side of the equation and streaming becomes a crucial tool for driving exposure and helping sell concert tickets. As Ed Sheeran himself said during his last album promo cycle, for him it is all about live. Indeed, for most successful artists, recorded music revenue is just a small part of the revenue mix. So at its most extreme, streaming is a marketing campaign that pays you instead of you paying for it.

Reach Or Engagement?

In the old charts model an Ed Sheeran super fan buying ‘Divide’ and playing it a hundred times in the first week would only show as one sale, and an album sale at that. There would be no impact on the singles chart. But in the current UK streaming charts, not only does that fan’s album listening now get counted in the singles charts (instead of just the album charts), the resulting 1,600 streams (16 tracks*100) become 160 chart placings (100 streams = 1 sale for singles charts). Consequently, the charts are conflating audience reach with audience engagement. It is the equivalent of Facebook merging Monthly Active Users and Daily Video Views into a single metric. It wouldn’t work for Facebook and it just doesn’t work for music.

A Fiendishly Difficult Problem To Fix

There is no doubt that ‘Divide’ is a fantastically successful and popular album, the problem is that because the charts are conflating sales with consumption we simply don’t know just how successful it really is. And that does a disservice to both Sheeran and his fans. Don’t get me wrong, I truly feel for the various charts organizations across the globe. This is a fiendishly difficult problem to fix, but the current solution just isn’t working. In all likelihood, a dynamic solution is going to be needed, one that has the flexibility to evolve as the streaming market and its industry role changes.

The Time May Have Come For A Separation Into 2 Charts

Ultimately the recorded music business needs to decide what it wants the charts to measure. In old parlance: sales versus airplay, in contemporary terms: reach versus engagement. One near term fix would be to only consider cached streams towards the charts (perhaps with a smaller deflator than the current 100). This would have the advantage of making the measure more reach focused rather than engagement led. It would also have the effect of reducing the impact on ‘push’ curated playlists, which depending on where you sit, can be either an entirely good thing or an entirely bad thing.

If such an approach was taken then some sort of purer engagement chart would need creating to sit alongside the main chart, one that weighted total streams alongside traditional radio. The argument for a streaming-led airplay chart is even stronger than revising the sales chart. With playlists now accounting for 58% of all streams (see MIDiA’s Streaming Music Healthcheck report for more) and curated playlists a third of those, streaming is becoming less about on-demand and more about lean back, radio-like experiences. Streaming is seemingly making radio programmers of the entire recorded music business. It is time for a chart that reflects this change.

‘Divide’ is an exceptional album in terms of commercial performance and audience reach, as is its impact on the charts. But in the latter respect, it is simply a trail blazer for the way in which big albums are going to play out on streaming. ‘Divide’ might not be the hair that breaks the camel’s back but it has certainly fractured it.